Network Formation And Systemic Risk

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Network Formation and Systemic Risk

Author : Selman Erol
Publisher :
ISBN 13 :
Total Pages : 38 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Network Formation and Systemic Risk by : Selman Erol

Download or read book Network Formation and Systemic Risk written by Selman Erol and published by . This book was released on 2018 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper introduces a model of endogenous network formation and systemic risk. In it, agents form networks that efficiently trade-off the possibility of systemic risk with the benefits of trade. Second, fundamentally 'safer' economies generate higher interconnectedness, which in turn leads to higher systemic risk. Third, the structure of the network formed depends on whether the shocks to the system are believed to be correlated or independent of each other. In particular, when shocks are perfectly correlated, the network formed is a complete graph, i.e., a link between every pair of agents. This underlines the importance of specifying the shock structure before investigating a given network because a given network and shock structure could be incompatible.

Network Formation and Its Impact on Systemic Risk

Author : Selman Erol
Publisher :
ISBN 13 :
Total Pages : 308 pages
Book Rating : 4.:/5 (961 download)

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Book Synopsis Network Formation and Its Impact on Systemic Risk by : Selman Erol

Download or read book Network Formation and Its Impact on Systemic Risk written by Selman Erol and published by . This book was released on 2016 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the second paper, titled "Network Hazard and Bailouts," I ask how the anticipation of ex-post government bailouts affects network formation. I deploy a significant generalization of the model in the first paper and allow for time-consistent government transfers. I find that the presence of government bailouts introduces a novel channel for moral hazard via its effect on network architecture, which I call "network hazard."

Systemic Risk and Network Formation in Social-Ecological Systems

Author : Ramiro Berardo
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Systemic Risk and Network Formation in Social-Ecological Systems by : Ramiro Berardo

Download or read book Systemic Risk and Network Formation in Social-Ecological Systems written by Ramiro Berardo and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the last few decades, there have been great advances in the study of how the structure of policy networks affect performance at a systemic level, but more recently public policy and management scholars have begun exploring in more detail how networks form and evolve. In an article published in 2010, Berardo and Scholz (2010) advanced the so-called “risk hypothesis”, which claims that perceptions of high risk members of a network lead to the formation of bonding structures that favor the transmission of overlapping information that solve cooperation problems, while low risk leads to the formation of bridging structures that produce non-redundant information needed to solve coordination problems. The authors found a tendency to the formation of bridging structures in the networks they analyzed, but their work had an important limitation: all the networks were embedded in newly-formed policy arenas where risk is in general low. This leaves the risk hypothesis in need of further testing. In this paper I use a case study approach to empirically test whether high-risk situations lead in fact to the formation of bonding structures, as predicted by Berardo and Scholz. To do this, I study the configuration of the communication network among relevant stakeholders in a portion of a reservoir basin in Argentina that can be considered a social-ecological system under a great deal of environmental and social risk. Findings show that, in fact, there is a higher tendency to the endogenous formation of bonding structures, which provides further support for Berardo and Scholz's ideas. Additionally, I discussed complementary results that create a more nuanced picture of how networks look like in highly-risky social-ecological systems.

Systemic Risk and Network Formation in the Interbank Market

Author : Ethan Cohen-Cole
Publisher :
ISBN 13 :
Total Pages : 48 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Systemic Risk and Network Formation in the Interbank Market by : Ethan Cohen-Cole

Download or read book Systemic Risk and Network Formation in the Interbank Market written by Ethan Cohen-Cole and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a novel mechanism to facilitate understanding of systemic risk in financial markets. The literature on systemic risk has focused on two mechanisms, common shocks and domino-like sequential default. Our approach is a formal model that provides an intellectual combination of the two by looking at how shocks propagate through a network of interconnected banks. Transmission in our model is not based on default. Instead, we provide a simple microfoundation of banks' profitability based on classic competition incentives. As competitors' lending quantities change, both for closely connected ones and the whole market, banks adjust their own lending decisions as a result, generating a 'transmission' of shocks through the system. Our approach permits us to measure both the degree that shocks are amplified by the network structure and the manner in which losses and gains are shared. We provide a unique equilibrium characterization of a static model, and embed this model into a full dynamic model of network formation with n agents. Because we have an explicit characterization of equilibrium behavior, we have a tractable way to bring the model to the data. Indeed, our measures of systemic risk capture the propagation of shocks in a wide variety of contexts; that is, it can explain the pattern of behavior both in good times as well as in crisis.

Systemic risk and network formation in the interbank market

Author : Ethan Cohen-Cole
Publisher :
ISBN 13 :
Total Pages : 37 pages
Book Rating : 4.:/5 (729 download)

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Book Synopsis Systemic risk and network formation in the interbank market by : Ethan Cohen-Cole

Download or read book Systemic risk and network formation in the interbank market written by Ethan Cohen-Cole and published by . This book was released on 2011 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Handbook on Systemic Risk

Author : Jean-Pierre Fouque
Publisher : Cambridge University Press
ISBN 13 : 1107023432
Total Pages : 993 pages
Book Rating : 4.1/5 (7 download)

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Book Synopsis Handbook on Systemic Risk by : Jean-Pierre Fouque

Download or read book Handbook on Systemic Risk written by Jean-Pierre Fouque and published by Cambridge University Press. This book was released on 2013-05-23 with total page 993 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook on Systemic Risk, written by experts in the field, provides researchers with an introduction to the multifaceted aspects of systemic risks facing the global financial markets. The Handbook explores the multidisciplinary approaches to analyzing this risk, the data requirements for further research, and the recommendations being made to avert financial crisis. The Handbook is designed to encourage new researchers to investigate a topic with immense societal implications as well as to provide, for those already actively involved within their own academic discipline, an introduction to the research being undertaken in other disciplines. Each chapter in the Handbook will provide researchers with a superior introduction to the field and with references to more advanced research articles. It is the hope of the editors that this Handbook will stimulate greater interdisciplinary academic research on the critically important topic of systemic risk in the global financial markets.

The Oxford Handbook of the Economics of Networks

Author : Yann Bramoullé
Publisher : Oxford University Press
ISBN 13 : 0190216832
Total Pages : 857 pages
Book Rating : 4.1/5 (92 download)

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Book Synopsis The Oxford Handbook of the Economics of Networks by : Yann Bramoullé

Download or read book The Oxford Handbook of the Economics of Networks written by Yann Bramoullé and published by Oxford University Press. This book was released on 2016-03-01 with total page 857 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Oxford Handbook of the Economics of Networks represents the frontier of research into how and why networks they form, how they influence behavior, how they help govern outcomes in an interactive world, and how they shape collective decision making, opinion formation, and diffusion dynamics. From a methodological perspective, the contributors to this volume devote attention to theory, field experiments, laboratory experiments, and econometrics. Theoretical work in network formation, games played on networks, repeated games, and the interaction between linking and behavior is synthesized. A number of chapters are devoted to studying social process mediated by networks. Topics here include opinion formation, diffusion of information and disease, and learning. There are also chapters devoted to financial contagion and systemic risk, motivated in part by the recent financial crises. Another section discusses communities, with applications including social trust, favor exchange, and social collateral; the importance of communities for migration patterns; and the role that networks and communities play in the labor market. A prominent role of networks, from an economic perspective, is that they mediate trade. Several chapters cover bilateral trade in networks, strategic intermediation, and the role of networks in international trade. Contributions discuss as well the role of networks for organizations. On the one hand, one chapter discusses the role of networks for the performance of organizations, while two other chapters discuss managing networks of consumers and pricing in the presence of network-based spillovers. Finally, the authors discuss the internet as a network with attention to the issue of net neutrality.

Network Formation and Financial Fragility

Author : Danilo Lopomo Beteto Wegner
Publisher :
ISBN 13 :
Total Pages : 17 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Network Formation and Financial Fragility by : Danilo Lopomo Beteto Wegner

Download or read book Network Formation and Financial Fragility written by Danilo Lopomo Beteto Wegner and published by . This book was released on 2014 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: A tractable model of the formation of financial networks is developed, allowing the use of concepts from portfolio theory. The optimal financial network maximizes a Sharpe ratio defined for financial networks, whereas the equilibrium financial network emerges from banks bargaining over future proceeds of co-investment opportunities. Measures of financial fragility, systemic risk and robustness are developed. The equilibrium financial network is shown to be the most connected and with the lowest level of financial fragility, whereas the optimal is the one least connected and with lowest exposure to systemic risk, being also the most robust financial network.

Systemic Risk and the Dynamics of Financial Networks

Author : Rui Gong
Publisher :
ISBN 13 :
Total Pages : 42 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Systemic Risk and the Dynamics of Financial Networks by : Rui Gong

Download or read book Systemic Risk and the Dynamics of Financial Networks written by Rui Gong and published by . This book was released on 2016 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper has two main objectives: first, to provide a formal definition of endogenous systemic risk that is firmly grounded in equilibrium dynamics of financial networks; and second, to construct a discounted stochastic game (DSG) model of the emergence of equilibrium network dynamics that fully takes into account the feedback between network structure, strategic behavior, and risk. Based on our definition of systemic risk we also propose a formal definition of tipping points. Using these tools we then provide a strategic approach to making global assessments of systemic risk in financial networks. Our approach is based on three key facts: (1) the equilibrium dynamics which emerge from the game of network formation generate finitely many disjoint basins of attraction as well as finitely many ergodic measures (implying that, starting from any financial network, in finite time with probability one, the dynamic sequence of financial networks arrives at one of these basins and once there stays there), (2) each basin of attraction is homogenous with respect to its default characteristics (meaning that if a basin contains states having a particular set of defaulted players, then all states contained in this basin have the same set of defaulted players), and (3) the unique profile of basins generated by the equilibrium dynamics carries with it a unique set of tipping points (special states) - and these tipping points provide an early warning of network failure.

Systemic Risk in Endogenous Financial Networks

Author : Daron Acemoglu
Publisher :
ISBN 13 :
Total Pages : 29 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Systemic Risk in Endogenous Financial Networks by : Daron Acemoglu

Download or read book Systemic Risk in Endogenous Financial Networks written by Daron Acemoglu and published by . This book was released on 2015 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a framework to study the formation of financial networks and investigate the interplay between banks' lending incentives and the emergence of systemic risk. We show that under natural contracting assumptions, banks fail to internalize the implications of their lending decisions for the banks with whom they are not directly contracting, thus establishing the presence of a financial network externality in the process of network formation. We then illustrate how the presence of this externality can function as a channel for the emergence of systemic risk. In particular, we show that (i) banks may "overlend" in equilibrium, creating channels over which idiosyncratic shocks can translate into systemic crises via financial contagion; and (ii) they may not spread their lending sufficiently among the set of potential borrowers, creating insufficiently connected financial networks that are excessively prone to contagious defaults. Finally, we show that banks' private incentives may lead to the formation of financial networks that are overly susceptible to systemic meltdowns with some small probability.

Endogenous Market Making and Network Formation

Author :
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (128 download)

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Book Synopsis Endogenous Market Making and Network Formation by :

Download or read book Endogenous Market Making and Network Formation written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Essays Over Netwerken

Author : Ana Maria Babus
Publisher : Rozenberg Publishers
ISBN 13 : 9051708939
Total Pages : 135 pages
Book Rating : 4.0/5 (517 download)

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Book Synopsis Essays Over Netwerken by : Ana Maria Babus

Download or read book Essays Over Netwerken written by Ana Maria Babus and published by Rozenberg Publishers. This book was released on 2008 with total page 135 pages. Available in PDF, EPUB and Kindle. Book excerpt: We find information through our social network. A network of banks handles our financial transactions. And when computers freeze under virus attacks, we are reminded of how pervasive networks are. This work concentrates on two topics. The first part of the thesis studies how highly unequal networks, where links are concentrated on a few key nodes, can emerge. The interest is motivated by how their structure affects their function: the spread of information and disease, for instance, may occur faster in such networks The second part of the thesis applies network theories to gain a better understanding of financial systems. We investigate the strategic motivations of banks to interact with each other when the banking system is exposed to the danger of contagion.

Supernetworks and Systemic Risk

Author : Frank H. Page
Publisher :
ISBN 13 :
Total Pages : 34 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Supernetworks and Systemic Risk by : Frank H. Page

Download or read book Supernetworks and Systemic Risk written by Frank H. Page and published by . This book was released on 2016 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We give a formal and computable definition of systemic risk that is firmly grounded in network dynamics and using our definition we show that the dynamics driving network formation generate a finite set of basins of attraction. The presence of basins of attraction has major implications for our understanding of systemic risk. First, we show that each basin is homogeneous with respect to its network failure characteristics. Second, we show that the profile of basins comes equipped with a unique set of tipping points. Thus, using our definition of systemic risk, we formally define the notion of a tipping point. Each tipping point is the gateway to some sequence of future networks leading inexorably to some basin, and depending on the failure characteristics of this basin, this sequence might best be described as a failure cascade. Thus, tipping points are the supernetwork's early warning system for network failure. Finally, we define and characterize the notions of systemic and killer nodes. The big picture take away from our approach to systemic risk is that what is critical in assessing systemic risk is the allocation of failure levels across the basins of attraction.

Systemic Risk: a Network Approach

Author : Jean-Baptiste Hasse
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (122 download)

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Book Synopsis Systemic Risk: a Network Approach by : Jean-Baptiste Hasse

Download or read book Systemic Risk: a Network Approach written by Jean-Baptiste Hasse and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Quantifying Systemic Risk

Author : Joseph G. Haubrich
Publisher : University of Chicago Press
ISBN 13 : 0226921964
Total Pages : 286 pages
Book Rating : 4.2/5 (269 download)

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Book Synopsis Quantifying Systemic Risk by : Joseph G. Haubrich

Download or read book Quantifying Systemic Risk written by Joseph G. Haubrich and published by University of Chicago Press. This book was released on 2013-01-24 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the aftermath of the recent financial crisis, the federal government has pursued significant regulatory reforms, including proposals to measure and monitor systemic risk. However, there is much debate about how this might be accomplished quantitatively and objectively—or whether this is even possible. A key issue is determining the appropriate trade-offs between risk and reward from a policy and social welfare perspective given the potential negative impact of crises. One of the first books to address the challenges of measuring statistical risk from a system-wide persepective, Quantifying Systemic Risk looks at the means of measuring systemic risk and explores alternative approaches. Among the topics discussed are the challenges of tying regulations to specific quantitative measures, the effects of learning and adaptation on the evolution of the market, and the distinction between the shocks that start a crisis and the mechanisms that enable it to grow.

The Formation of Financial Networks

Author : Ana Babus
Publisher :
ISBN 13 :
Total Pages : 51 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Formation of Financial Networks by : Ana Babus

Download or read book The Formation of Financial Networks written by Ana Babus and published by . This book was released on 2013 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modern banking systems are highly interconnected. Despite their various benefits, linkages between banks carry the risk of contagion. In this paper I investigate whether banks can commit ex-ante to mutually insure each other, when there is contagion risk in the financial system. I model banks' decisions to share this risk through bilateral agreements. A financial network that allows losses to be shared among various counterparties arises endogenously. In an equilibrium interbank network the probability of systemic risk, defined as the event that contagion occurs conditional on one bank failing, is at most half. I show that there exists equilibria in which contagion does not occur.

Essays on Financial Networks, Systemic Risk and Policy

Author : Peng Sui
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (824 download)

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Book Synopsis Essays on Financial Networks, Systemic Risk and Policy by : Peng Sui

Download or read book Essays on Financial Networks, Systemic Risk and Policy written by Peng Sui and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This essay consists of three chapters. Chapter one extends Allen and Gale's (2000) model to a core-periphery network structure. We identify that the financial contagion in core-periphery structure is different to Allen and Gale (2000) in two aspects. Firstly, the shocks to the periphery bank and to the core bank have different contagion processes. Secondly, contagion not only depends on the amount of claims a bank has on a failed bank, but also on the number of links the failed neighbour has. Chapter two studies the policy effect on financial network formation when the government has time-inconsistency problem on bailing out systemically important bank. We show that if interbank deposits are guaranteed, the equilibrium network structure is different from the one under market discipline. We show that under market discipline individual banks can collectively increase the component size using interbank intermediation in order to increases the severity of systemic risk and hence trigger the bailout. If interbank intermediation is costly the equilibrium network has core-periphery structure. Chapter three follows Acharya and Yorulmazer's (2007) study of the "too many to fail" problem in a two-bank model. They argue that in order to reduce the social losses, the financial regulator finds it ex post optimal to bail out every troubled bank if they fail together, because the acquisition of liquidated assets by other investors result in a high misallocation cost. In contrast to their paper, we argue that there is no "too many to fail" bailout, unless banking capital is costly and market price sensitive. We argue that market price sensitive capital can induce banks herding and high social cost.